You hear about it all the time—another wealthy celebrity in court, facing charges for tax evasion. It seems like there’s a news story about this topic every week, and often enough, the resolution involves at least a little jail time. It’s a serious penalty to pay, and one that could serve to interrupt an otherwise flourishing career.
These people are smart and accomplished, they’ve got a world of wealth at their fingertips, and it makes you stop and wonder how they got there. Was it intentional deception? Financial mismanagement? Inability to read and understand tax law? The truth is that, while all of these factors may or may not have played a role, it’s not uncommon for those who make far more than the average living to find themselves in tax trouble.
Beyond that, sports stars face a particularly distinctive tax situation. Games and meets in various states leave them open to the tax laws of that particular area, as that is technically where you’re “earning” your living. Think a standard income tax return is tough to understand? Try navigating filing in 20 different states. If it sounds like a lot to keep up with, that’s because it is.
As a pro athlete, you know the value of discipline. Your body is your job, and you’ve trained it hard to get it to work for you. The money you receive in return may pale in comparison to the accomplishment you feel when you win but maintaining financial security does require the same type of disciplined mindset you use when you’re training. Wondering what your paycheck means for your tax bracket? Relax. We’ve got some tools to help you avoid a tax trap and keep pushing toward your next big achievement.
A Cautionary Tale of Tax Woe
If you’ve been wondering whose financial footsteps you should avoid following, you need look no further than the media for answers. For example, Yankees superstar Derek is believed to have pulled a fast one on the state of New York by stating he was a Florida resident on a few years’ worth of filings. The reason? He likely could have saved a ton of his hard-earned dollars by doing so, as there is no income tax in the Sunshine State. It didn’t work out that way, and although a financial settlement was eventually decided on, the outcome could have been even more severe.
The bottom line? Even if you’re a pro athlete that doubles as a fiscal wiz, it can still be tough to make sense of your income taxes. Difficult doesn’t mean impossible, however, and all hope is not lost. If you’re looking for tips to save you some potentially costly mistakes, take a look at our roundup below.
5 Things to Consider Before You File Your Taxes
- Location, location, location – Where you earn directly correlates to how much you owe come April 15th, so it’s important to note all of the cities and states that you compete in to be sure everyone is getting their fair share. Pro tip: beware the “jock tax”, which is a special fee applied to touring athletes in specific areas. Beyond that, understand that location is an important factor for endorsement deals and other media payouts, and that international earnings are subject to a whole different set of rules.
- Don’t pull the wool over the IRS’ eyes – While this may seem like a pretty obvious rule of thumb, the old adage states that the more you make, the more they take. It can be tempting to try to exploit loopholes to your advantage to keep more cash in your pocket, but if any exemptions or refund guarantees seem fishy, the end result could cost you more than just money. Tax fraud is serious business, and making a lot of money can put your financial situation directly under the government’s microscope. Best to play it straight.
- The cost of giving – Another area of your tax situation that demands special attention is your charitable contributions. While it’s true that many donations can be written off of your income taxes at the end of the year, knowing exactly how much of a benefit you get can be extremely complicated. If you’re the one receiving contributions, it can get even stickier—make sure you’re reporting your donations as income if you’ve got a non-profit in your name.
- The value of the once-over – Everyone makes mistakes, and the ins and outs of tax law are not always readily understood by the general public. So, once you’ve got your filing prepared, make sure you go over it with a fine-toothed comb (so to speak) before you send it off for processing. It’s much easier to correct a small error before it makes it to the hands of the IRS and having another gander could help you save face and money in the long run. It’s worth the time it takes to get it right.
- Consult with those in the know – The easiest way to make sure you’re not being misled by a tax scheme or bungling your return all on your own is by relying on a tax professional, as well as a financial professional. Taxes are part of their wheelhouse, and when your professionals work together it’s likely that they may know the facts of your specific situation even if you don’t. A collaborative effort might bring you greater confidence your doing the right thing and keep you from repeating the mistakes made by pros before you. Don’t hesitate to make an appointment and see what assistance they can offer you.